The NZ Property Market Podcast
Brought to you by cotality, formerly CoreLogic. Each week co-hosts Nick Goodall and Kelvin Davidson will bring you all the latest news, stats and insight to keep you up to date with everything to do with the NZ residential property market. Including sales volumes, house price indices, buyer activity, interest rates, loan-to-value ratio restrictions and all of the macro economic factors that influence our largest asset class. Contact us on twitter @NickGoodall_CL or @KDavidson_CL
The NZ Property Market Podcast
Guest episode - Steve McMenemy Loan Market
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Today we sit down with the esteemed Steve McMenemy, director and mortgage advisor at Loan Market Auckland. As a veteran in the finance industry, Steve provides us with a deep-dive into the intricacies of the New Zealand property. We walk through the projected growth in the Massey area, and Steve unpacks the vulnerabilities and opportunities in the new build market. In light of the Unitary Plan, we also discuss its impact on the housing market and new build projects.
Shifting gears, we delve into the current housing market and the psychology of first-time buyers. Steve shares valuable insights into the factors stoking increased demand and gives practical advice to those grappling with affordability in this fast-paced market. In the wake of recent changes in property investor borrowing, we dissect the implications of removing the ability to offset mortgage interest costs as a tax deduction, as well as the loosening of LVR restrictions.
To wrap up our discussion, we turn our attention to the evolving trends in apartment living and reflect on the Reserve Bank's influence on the market. We also explore the role of debt-to-income ratio in bank policies and why more Kiwi are turning to brokers for their mortgage needs. Steve's unique insights and experiences provide a fascinating perspective on these topics, making this a must-listen episode for anyone interested in the New Zealand property market. So tune in and enjoy this comprehensive ride through the NZ property market!
Contact Steve at:
https://adviser.loanmarket.co.nz/steve-mcmenemy/
https://www.instagram.com/steve.mcmenemy/
loanmarket.co.nz/steve-mcmenemy
021 743 494
Sign up for news and insights or contact on LinkedIn, Twitter @NickGoodall_CL or @KDavidson_CL and email nick.goodall@cotality.co.nz or kelvin.davidson@cotality.co.nz
Kia ora and welcome to a special guest edition of the New Zealand Property Market podcast brought to you by CoreLogic, produced by Agents TV. I'm Nick Goodall, head of Research at CoreLogic, and today I am joined by Steve McMenamey, and he is the director and mortgage advisor for Loan Market, based out of the west of Auckland, in Massey, I believe. Is that right, steve?
Speaker 2:North West Auckland. We're on the top of the north west shopping mall, down at the bottom of the north western motorway. There.
Speaker 1:Nice mate, and how are things going out there?
Speaker 2:Very good yep, it's a pretty dynamic market right now actually, which might surprise some people, but yeah, it's a good area to be in and it's a pretty good market to be in right now.
Speaker 1:Yeah, cool, nice newish area too, isn't it? In terms of the developments around that area and lots of fresh homes going up, I suppose, in the last few years, which must make it a nice area to be part of.
Speaker 2:Yeah, yes, a huge area in terms of planned growth, I think, probably one of the biggest sort of planned developments in the country actually. So, yeah, there's a lot going on.
Speaker 1:Yeah now, I find it a really interesting one and a cool area to visit. But look, we'll get into the details about your local market, and a bit of the broader stuff as well, shortly. But before we get fully into it, I thought it'd be nice to just tell us a bit more about yourself how long you've been an advisor for do you have a family we just said beforehand that you've got a child at home today and what do you do to keep yourself busy and entertained outside of work? So give us a bit of an intro to Steve mate.
Speaker 2:Wow, oh man, how long have you got? This is my favourite topic. So, look, yeah, married kids. That keeps me fairly busy, as you can imagine, in terms of work. Look, I've been around the finance industry for actually for 20 years. It's been a long time, you know. I've seen a lot of changes.
Speaker 2:I've sort of always been in the mortgage-broken space, but I have taken some time out of the industry over the years and sort of explored sort of related areas as well, which has kind of only really added to, I guess, what I offer. So, for example, I've done quite a bit of private land development and new build construction along with my business partner, like quite a few hundred new builds over the years. Also spent time working with what used to be called Housing New Zealand, so it's going on now. So I was acquisition manager there for a while, which was a really interesting thing to be a part of. So with my time there with housing, I was in that area of sort of seeking out joint venture opportunities to bring the public and the private sector together and for joint venture in full housing outcomes for social housing. So that was a really interesting month for me there too, because that was as the Auckland Unitary Plan was sort of coming into fruition and we were sort of using that at the time to achieve the sort of density that we hadn't achieved in Auckland before, and so to be part of that and on that scale, that scale you can only achieve in that organisation here in New Zealand. There's no one else anywhere near that size. So that was really really interesting.
Speaker 2:And so when I take what I sort of glean from that role and glean from my own personal experience within that sort of private development, and then bringing that back into my finance, it enables us to offer a lot more than maybe just the traditional broker does. So, yes, the bread and butter of our business is always going to be residential mortgages, but we're able to do a lot more on the commercial side as well. We have quite an interest and do quite a bit of work with development and development construction in particular. So very, very different beast that one, but it's something that we're all quite skilled at within our team as well. So, yeah, so I guess to sum that up, right many years within the industry, but sort of also sort of branching out to bring those other skills back into the finance part.
Speaker 1:Yeah, that's awesome and I love and that broad experience just gives you such a good perspective on things. You know you can see it from the other side of things when you're trying to do a deal for a new build for a client, whatever it might be, and certainly when you're on that side of things with the government and kind of order or say, how's New Zealand as it used to be, you know what an amazing experience to have there as well, to have that under your belt. So, yeah, no doubt gives you great perspective and anyone that's close to that new build side of things to us it fascinates me. It's obviously a really key part of the market, one that we're always trying to get a handle on, and obviously has shown some vulnerability too as we go through this downturn in the market and a few liquidations too. So anyone yeah, massively.
Speaker 2:We see that on every cycle. Actually, you can almost set your watch to it, so it's not surprising, but it's always interesting. And it's been a little bit different this time around because the Unitary Plan opened up so much more opportunity for it and, as you'll know, the level of consenting was huge. And then there was also incentives for buyers to be in that new build space as opposed to existing. You know, particularly for investors and for first home buyers, there was advantages with being in that new build space, but they offer different things to the existing houses in terms of section size and privacy and those sorts of things. So, you know, there's these different things pulling people in different directions there, and it's been really interesting over the last year to see the as the values of the existing stocks kind of retreated, the switch of people going back from the new builds to the existing stocks being quite an interesting one as well.
Speaker 1:Yeah, I noticed a little bit of nervousness there playing part there, right, and why. I'll talk about more about new builds shortly. Yeah, the thing I just want to touch on was you know the history on loan market and obviously I recently attended your Trans Tasman Awards Night, which was an amazing couple of days and some impressive figures in terms of the awards being thrown around. So I wondered if you could just talk about you know what makes loan markets such a successful business, why obviously you're involved with the group and what are some of the important developments in the business you see as sort of keeping you and your business ahead of the pack.
Speaker 2:I think there's a couple of really key points for loan market which is why we're part of it is one would be the scale. So you know it's a business that spans New Zealand and Australia, so it's got a lot of scale and I guess that gives a lot of hallmark. But it's a business that's heavily invested in and run extremely well in terms of the top level of management and you know both of those points. You know that filters through to just better outcomes. So it's better outcomes for the brokers and because of the support that that provides and that in turn, gives a better outcome for the clients. And you can see, if you look at sort of you know, the average performance of, say, the average loan market broker compared to just the industry as a whole, it tends to always be, you know, notably higher.
Speaker 2:And it's a business that's heavily investing in the future as well. So there's, you know there's a lot of talk right now about AI, open banking. You know what does it all mean? Does it mean things are going to change? Well, you know, probably it does, but it's about trying to be ahead of that curve and that's, you know, it's kind of like a bold new world and you need a bit of horsepower to be ahead of that curve in, you know, in any meaningful way, I suppose, and that's something that the loan market brand offers.
Speaker 1:Yeah, not for sure, and I think it's just that push towards more digitisation right and being able to do things faster and easier and giving that customer at the end point, a way better experience and, like I said, any person of any decent size can enable that to happen with greater tools, greater partnerships and all that sort of stuff too. So really just to see how it goes anyway and the future developments as we move through, as you say, some pretty exciting times for the banking and finance industry. So I like that, mate. Right then let's get into the market then, mate.
Speaker 1:So I know that any mortgage advisor worth their weight is keen to talk about the current market, and what I wanted especially for you is to talk about anything that might be relatively unique for your area or the type of clients that you talk to. I'm sure that you don't just deal with, you know, northwest of Auckland, whether you stretch across the whole of Auckland as well, but really what you're experiencing right now maybe recent changes as well, across different buyer types, different property types as well, whether you sort of get involved in what's happening around units no apartments or townhouses and houses and then definitely, if you've got any insights on what's happening with those new boards, just sort of touch them up before a swing back towards existing, but whether that's going to continue on forever. So, yeah, give us a sort of take on the current market and potentially some you know future thoughts where the market might go to as we move through the rest of this year.
Speaker 2:Yeah, okay, man, that's a massive subject Because we've got I guess we've got the current market, but then we've got the different types of buyers right. So we've got first home buyers, then we'd have, you know, the second home buyers, or clients who are trying to sell a house and buy another one, and then I guess you'd probably say third buyer group set would be investors, and so, yeah, they're all very different. So the first home buyer market, that's a really busy one right now, for sure. So there's been a lot, I think there's been a lot of sort of pent up demand there coming off the back of beliefs, I guess. So the psychology and something you know chat about sometimes.
Speaker 2:You know when, when, when, if you're a first home buyer and you and all of your friends and everything you read is suggesting that interest rates are going to continue increasing forever and property values are falling and the market's going to crash, then would you go, hey, should we buy a house this week? You know, probably not. So you get a whole lot of people sort of standing on the sidelines, and if you get enough people standing on the sidelines, then everyone just does the same thing. So now everyone's on sidelines and that's what we've experienced over the last sort of year or so, right, but that that that belief systems change. So I think enough people believe that interest rates have probably peaked or thereabouts. You know I'm you know with the reasonable signals out of the Reserve Bank that that's probably the case, unless the numbers that come through start looking a little less favorable.
Speaker 2:but you know, we're probably there thereabouts give a take a little bit for volatility. And there's I think there's some pretty reasonable anecdotal evidence that would suggest that property values, you know, probably did bottom out. From what I see and it's just from what I've seen I would probably say may for us was probably where we saw the bottom, where we're sitting, and you know, time will tell. I suppose sometimes you're a wait a few months to find out where the bottom actually was. And so enough people think, hey, it probably is not going to get any cheaper. In fact it might start to cost more. An interest rates aren't going to get any worse. I can afford it now. This is as bad as it's going to get. But I can buy a house for maybe a couple of grand hundred well, a couple of hundred grand cheaper than I could have a couple of years ago.
Speaker 2:So all of a sudden it goes from looking terrible to looking like, hey, this is actually a really good time to buy and it happens really quickly, like I mean really quickly. So for us it probably happened in July, but literally all of a sudden everyone we're talking to wanted to buy a house yesterday. Where has we had been talking to people who were sort of looking and then not looking and thinking and you know, and sort of dealing with them for six months. And now we're now all of a sudden everyone's buying. And obviously I talked to a lot of real estate agents and whatnot and they're all experiencing the same thing, like literally a switch got hit and now everyone's keen to buy. So it's become quite an interesting time. Now you know where there's probably more people wanting to buy than there are people considering selling. So you know that'll have its own dynamic.
Speaker 1:Let's get to the first-time buyers. I've got a question on that. So you're talking about absolutely the psychology, the sentiments changed. We sort of talk about as well that you can quantify that worst case, as you said no property values like unlike the job, further interest rates unlikely to increase too much. That's all good when it comes to I want to buy, you know I'm keen, I can't see things getting worse so I'm going to do it. How do your conversations go around people being able to buy, so that affordability pressure? You know the difficulty for people now to still borrow a relatively large sum of funds and a relatively high interest rates with income that might be decent but still hard to pass those serviceability tests. How are those conversations going for you? Are you turning many away or you know, and tied into this, maybe triple CFA staff around expenses?
Speaker 2:How are those?
Speaker 1:conversations going now around trying to adjust your expenses to ensure that you can satisfy the criteria to get a mortgage.
Speaker 2:Yeah, that's. That's a really good question, because it is. It is tight, like everyone knows that. So you know, every time the interest rates go up it means that every one of us can now borrow less than we could the day before because, you know, our incomes probably haven't increased at the same rate and so and I guess that's part of what filters through into the market and has a negative impact on values and helps, you know, sort of pull that back into line as well. So so one of the things is, you know, people aren't typically expecting to spend the same amount of money now. Anyway, you know, you probably. You know, buy something today that would have cost a couple of hundred grand more a couple of years ago. So, yeah, the interest rates higher, but the property prices or the size mortgage will take out is going to be lower, which helps compensate. Personally, I'd rather pay less for a house because you know the purchase price is permanent, interest rates temporary, you know, but the reality is is your servicing is very tight.
Speaker 2:Access to finances is reasonably cyclical. We go through a tightening phase, we go through a loosening phase. We've seen a couple of things recently where things have got a little bit looser In terms of the amount of risk banks are having to factor into things, because they see where we are as well. If you're at the bottom and you're expecting things to get bad, then I guess you put a lot of risk in. If you think things aren't that bad and things are probably going to get better, you can get away with less risk. So those sorts of tools that the banks use as well to try to keep things as free as they can without being irresponsible.
Speaker 2:But the reality is people are not able to borrow as much as they were previously. But when we look at the actual cost of the mortgage, they'll be pretty happy with that. If someone wants to borrow $750,000, but they can only borrow $650,000, when you show them what $750,000 would actually cost them per week, they just fall over. So it's not like they don't still want that figure once they realise what it will cost. And they can probably still get what they wanted with this reduced mortgage anyway, because the value is dropped. So it's a funny one. So it's not as bad as you might think, I guess, as we're coming to there, when you consider it, what it actually means to people.
Speaker 1:I guess it's a bit of adjustment of expectations, right? Is that? Yeah, you could get that property and live in that area. But if you really want to get a property and live in that, stop renting, then adjust your expectations. You can still get into the market and it doesn't have to be your free for home straight away. So I suppose the ability to adjust those expectations is really important for a first-time buyer. Yeah, it really is.
Speaker 2:And one of the good things now, though, is they've got a lot more options. So, you know, it's because it's nice to go. Oh well, you know we used to get 2.5% interest rates, and, yeah, that was lovely. It was never going to last, but it was great. But the you know, the downside to that was, when the buyers went to the auction, there was 50 people bidding on the house, and they got outbid by $200,000. That's quite, you know, that's soul destroying. So it's like like it's never perfect, you know. So, yeah, the interest rates were lower, they could borrow more, but the house, like, it was so hard to buy anything. Now they've got a lot more options. Prices are way more reasonable. Yes, they can borrow less, but that's okay, because prices reduced, the interest rates are higher, but at least they can get in there and negotiate and actually buy something. So it's, yeah, I don't know what perfect looks like, but I don't think I've ever seen it.
Speaker 1:That's a good point. But, like I say, at least that desperation is not quite there at the moment and that's got to be a good thing, that you don't feel like you're being forced into a decision really quickly and that's not good for anyone. Best home buyer, massive purchase, massive life decision, and you feel like you're being panicked into it because, like I say, an auction or something in this with other people and I like your point around the options too, in terms especially in Auckland, right, we know that it's got the broadest range and type and value of property, largest city, massive. You know all different types of properties available across the city and different locations. I know some people will probably be pretty wedded to certain areas. I have to live on the North Shore or I have to be in the East Coast base, whatever it might be. But generally if you are willing to adjust those, you can have plenty of options out there. So that's the manner of being flexible for that.
Speaker 1:And first home buyers that's really key. But look, we can probably talk about the psychology of first home buyers forever. Can you get your thoughts as well on that investor market and what conversations look like when you're talking to an investor? These days obviously have been a recent loosening of the loan to value ratio restriction, that the positive requirement has come down all very slightly, and then of course we've got the consideration for whether there's an election or there's a government change of course with the election coming up and even nationals policy announcements yesterday around tax changes which could have an influence as well. So we don't get into all that detail, but just your take first on conversations you're having with investors. Has that psychology changed for them too? Are they coming back into the market? They can see the floor of the market and they want to start to put their money back into housing, or how those conversations going for you?
Speaker 2:Yeah, that's been a really interesting one because it's not been easy to be a property investor for the last few years. Right, it's only got harder and harder and harder. And so the recent loosening of the LVR restrictions I haven't really I haven't seen an impact from that, because the probably the bigger issue for property investors is literally just the affordability and what that means to them. So you know, within that investor pool, you know you've got some people who are very sort of independent. They've got quite a large portfolio, they've done it forever. You probably call them a professional investor and they're reasonably self-funded. But the reality is most property investors are mom and dad type of investors who might own one or two properties and that's all they'll ever own. That's you know. Most of the investor market is made up from those people, and the access to that funding is probably the biggest issue. So the affordability, it's got harder and harder for the investors.
Speaker 2:So there's been some significant changes. So one was the amendment to the triple CFA, which meant we now had to sort of account for more things that were kind of accounted for anyway. For an example, the rental income that was always going to be shaded back to, you know, let's say 75%, to allow the other 25% to be used for things like insurance and rates and maintenance, maybe some downtime when there's no tenants, but now we're having to sort of still do that. But then also factor in the actual cost of rates and insurance is things. So it's like double dipping there. But then a massive blow has been the removal of the being able to offset the cost of the mortgage or the interest cost of your mortgage as a tax deduction. And so what that means in real terms obviously is someone who probably didn't have a taxable position at the end of the financial year because the money had all gone on rates, insurance, the mortgage that's the massive one, you know improved maintenance, etc. Like you literally come out the end of the year with no money, but suddenly now you're in a taxable position, so you've got no money and a tax bill. So that's real money coming out of people's pockets. So so the banks have to account for that, and so they've had to change the calculations that we can use as well to account for this other massive tax expense, which and so all of these things just means your ability to borrow money is just going down, down, down, down, down, down to the point where you might get one house, unless you've got a really strong income, at least here in Auckland, you're probably not going to get another one, whereas maybe last cycle there was the ability to get another one or even two potentially.
Speaker 2:So the access to those funds is what's probably hampered that market more than the LVR restrictions itself, because the reality with the LVR, most investors aren't walking around with a few hundred thousand dollars in their pocket for a deposit. They're actually going to use another asset, probably their home, that's got equity that they've built up over the years and we're going to leverage off that. And so you know whether they needed a 20% deposit or a 40% deposit. It was probably neither here nor there. They probably had access to that in their existing equity position. It's just been actually the debt servicing that's absolutely killed it.
Speaker 2:And the recent you know all from the not recent now, but all the changes that were made under this current government and in terms of all the added costs, and then you know, losing that big tax. I was going to say incentive, but that's not fair because it's not an incentive. That's just sort of normal business practice, isn't it? Maybe you've got to take on some debt for your business to expand, then you can offset the cost of that finance. But so that's the biggest thing for them, and so I think you know for us we've seen very little on from the investors over the last couple of years.
Speaker 2:Understandably, investors tend to like older properties that they can buy and quickly add value to and then bring back and into the rental market, and you don't get that opportunity with new builds. So typically you know if it's new it is what it is and it's worth what it's worth on the day, and nothing you do is going to change that. So that's kind of less appealing, even though they still have the tax advantage. So I think that there will be quite a few people who are almost ready to go, who will actually wait just to get a bit more certainty. I know National came out with their policy was it yesterday? You know that's what they were waiting to hear. But now they're probably going to want to get a bit of feel for whether they're actually going to form a government, and so they can, because that will actually have some impact for them, albeit it's going to look like it's going to be staggered over a few years, but it is probably. For some. That is the good news they're probably waiting for to reenter the market.
Speaker 1:Yeah, I mean again almost comes down to the sentiment change. Right, it's just like a you know that there's a path forward here and if they do feel confident in recent polls certainly look, look likely for national to form the government. So really savvy investors might look at that and say better to get in sooner rather than later. We accept that they're probably going to be better in the future. Sentiment could drive crisis higher faster as well, and so they definitely look to get in sooner rather than later.
Speaker 1:I think I still have a journalist yesterday and out of the point that you know we do expect debt to income restrictions to come in next year as well, and the Reserve Bank even if there's a new government, of course Reserve Bank could do that anyway. And so again, from an investor's perspective, I'm like man, I better get it now. If I don't now, then I'll wait till next year. I might actually not be able to because the debt to income restrictions will actually limit me being able to get a mortgage. So that could also cause people to bring forward their purchases. So, you know, I do think it's an interesting time for those investors and how much that sentiment and expectation and maybe hope in some cases they can change their behaviour and bring those that activity further forward and they get into the market sooner, which you know, strangely enough, will then add more activity. Now, more demand pushes prices up sooner as well, so it can always be a self fulfilling thing as well If we do say enough of that momentum change to come into it.
Speaker 1:So really intriguing one to watch, no doubt about that, and a couple of months now, less than couple of months for the election, it's going to be a very interesting time as all these parties play the politics and you try and read between the lines and see what's just about Grabbing and what's real. And yeah, certainly certainly interesting one, it's for sure.
Speaker 2:Yeah, yeah it is. The elections are always play a big part in the sentiment, for sure, even though a lot of what people are sort of waiting for won't really impact them anyway. But there just seems to be what happens around elections.
Speaker 1:Okay, well, other than sort of the biotypes of that psychology, is there anything else in terms of maybe differences you're seeing in the market or differences you expect in the market Around either property types, so houses compared to apartments or flats, if you do deal with those types of properties and or above certain value bands? So do you see more activity below million dollars, for example, and you're seeing that the upper end of the market struggle, or is there anything kind of, from your perspective and your dealings, that you're seeing that a difference is across those property types or property values at the moment?
Speaker 2:I think the biggest thing for us right is is seeing Maybe that sub million dollar market that was, for you know just from where we sit and sort of anecdotally, that appeared to be the one that was, you know, affected the quickest as things slowed down. But, you know, on the other side of the corner it's being affected quite quickly as the sentiment's turning around, because I think that's probably, you know, that is the biggest pool of buyers, being the first time buyers, who tend to be sort of in that sub million dollar market and like, as we're already discussing, without having to compete with the investors as well. So if a lot of investors come back into that market space and I don't think we'll see them on, you know, typical investor volumes because it is still really difficult for them to get money, but you know, if we get a few more investors coming into that space, then it will become even more dynamic. So that's probably the biggest one for us. In terms of the apartment space, New Zealand loves houses, right, and slowly coming around to so high density living, it is becoming more and more acceptable, I guess, and some people see it as a lifestyle choice. You know they'll lock and leave apartment. No, no long term moment things. That sounds quite nice, but one thing we do see it, we do see it quite clearly actually is like if the people are saying, you know, talking about the market as a whole or the markets picking up, what we'd see is the we tend to see the apartment market doesn't appear to be, it seems to be, it seems to lag.
Speaker 2:So I think a lot of people who get into apartments did do so when the markets getting quite tricky and they're missing out on property and the values increasing and they're kind of you know, looking at what can I now get for my budget on this half falling down house?
Speaker 2:That smells funny, it's, you know. You start to get quite you know down on that and you start looking at other options. One option is that you look further out, you know, because typically the further away from town things tend to be a little bit cheaper. But another option that some people do look at is oh, if I go closer to town and look at an apartment, what does my lifestyle look like? And it can actually start to look really attractive. And that's why I think we see that lag and once that market picks up, that starts to be quite buoyant and dynamic as well. But from what I'm seeing, I don't do a massive amount within the apartment space, but I do enough to sort of see what's happening there and it still appears to be reasonably quiet. So you know, apartment living is your thing. It's probably a really good time right now, to be honest.
Speaker 1:Yeah, I wonder if it's another one to watch for the future. We're seeing, obviously, a pretty big increase in tourism and people that are doing short stay Airbnb. You can have your apartment on those sort of sites as well, which tracks, tracks. Those tourists, excuse me, and also international students coming back to study in New Zealand too. Obviously they're very keen to live Close to town, close to university, don't have cars or whatever, so happy to be walking.
Speaker 1:So I think, as demand for that starts to come in as a tenant to be ready to go to Best is certainly start to see the value stack up where you can get decent rent and cheaper purchase price than what you're You're having to pay for a house, and the numbers might stack up a little bit better as well.
Speaker 1:So, not only from a, like I say, an unoccupied perspective, but also from the best of perspective, might start to see things continue to change as they move throughout this year and maybe more so as next year anyway.
Speaker 1:So none of that that's really interesting and good insight there, and all right, my will. In terms of outside the current market, other factors to look for and maybe part of now, your interactions you're having on a regular, regular basis to. I wonder, like how much you sort of pay attention to everything that goes on the reserve bank. We feel like we're kind of consistently just waiting on the next announcement from reserve bank, and if it's not the OCR and the multi-policy statements, there's something else they're always releasing. And how much do you follow what's going on? The opposite, it's pretty important interest rates, which are dictated by the reserve bank largely. And do you so just pay attention to the OCR or is it much more than that, that you do sort of keep a track of what's going on? You know, down the road here in Wellington at one of the terrorists, yeah, that's.
Speaker 2:Yeah, I mean because you can go down a bit of a rabbit hole and Get too busy trying to keep up with the reserve bank that you forget to write mortgages. So it's probably more, more of a high level in terms of following them. So, yes, the the OCR is something that we want to be on top of so that we can Get a feel for where that's at, because we're having those conversations daily with people who sort of want our take on things. But, as well as the OCR, I think it's listening to the message. You know what's the message they're giving out.
Speaker 2:You know, is it a, is it a warning shot? Because they're quite good at saying things as a warning shot. You know the debt to income, I mean, that's, that's been a warning shot for months and months and months now, and you know they'll. I think it's a tool that they'll definitely use when they feel they need to use it, but it's, I think it's been used as a more of a warning shot Up until today, and the reality is, is most banks actually use the debt to income as a bit of a guide.
Speaker 2:Anyway, it's not like a black and white tool that they use, but it is part of their decision-making process. So they kind of do take that on board and sort of use it behind the scenes, and I think that's probably why the, the reserve banks, sort of chuck those things out there as to, hey, if we say it and if we threaten these things, then hopefully the market will just do it anyway, and now then we won't have to. You know, I think that's kind of what they do. So, staying on top of the sentiment, on what they're staying, it is probably more important for us to get that vibe and yeah, that's a reasonable income.
Speaker 1:Yeah.
Speaker 2:Yeah, the DTI, that's an interesting one. I think it's good if you've got various tools, I. But it's a funny one because you know that's a tool just like the, the LVR restrictions as a tool and I kind of get the restrictions of that. You know, the reason they don't want a lot of high LVR lending is because they want the overall New Zealand mortgage book to be, that's, sitting at a low percentage, because we want to make sure we're in a really good position when something really really really bad happens. And I that makes sense, but it's it's it's kind of sad that that impacts the people that are needing them the most help, you know. So the poor first-home buyers getting a little bit beat up, and they're the people that actually Probably, you know, needing a bit of help, not needing another hoop to jump through. So it's, it's kind of a blunt instrument. All these things are quite blunt instruments.
Speaker 1:So yes, it makes you have these tools.
Speaker 2:Yeah, I know sometimes the unintended consequences can be a bit of a shame for some groups. You know, the reality is if they bought the DTI in today, they probably wouldn't make a difference at all because the interest rates At a point where you can't borrow that much anyway, so I wouldn't do anything. So you know, if we go back to two percent interest rates, yes, they would definitely have an impact, but if we're down at two percent interest rates we've probably got bigger problems, right?
Speaker 1:Yeah, and this bag on, that's kind of what we've been saying is that, yeah, the DTI is essentially wouldn't be binding initially. We've seen from the reserve bank data that high DTI lending has come down dramatically, mostly because interest rates have increased and, as you said, that limits how much you can borrow compared to your income. So serviceability has effectively been doing the job anyway and I think what you reserve bank gave read between the lines, I like the way you said in terms of just watching them for the sentiment of what they're saying, although the warning shots they're fine. I quite like the way you say that because it is very much them indicating how they think we should be to ensure financial stability of our economy. You know that's ultimately what they're doing and I very much think they'll still bring them in.
Speaker 1:But it's not even about this cycle. You know, like you said, they won't be binding. It's more about what happens next cycle. And I think at the same time, if they bring the DTI is in, loosen the LVRs. They kind of take with one hand, give with the other and then they've got both of those tools to use as leverage in future To ensure that they're protecting and they talk about one protection the borrower, one protects the bank. They feel like they got that control to ensure that I've got, you know, full understanding of what's going on and that we're not going to see, like I said, some some financial instability which could cause broader problems to our economy if we did see some sort of drama down the road. So, yeah, really interesting one and certainly much more information and, you know, communication reserve bank to follow from the rest of this year. But it's a good little. Take on that one anyway, but let's let's move on to the next slide.
Speaker 1:Take on that one anyway, but let's let's move on the other thing I want to talk about, steve, was you know the fact that we're seeing such a significant swing towards broker originated mortgages Rather than those proprietary bank origination. I wonder if you've got an opinion on that as to why that's happened. What is it about the broker and mortgage advisor experience that might be attracting more people to to talking to brokers rather than going direct to our bank or their bank? And and do you think that sort of change in trend is here to stay? So we're just going to continue to see that those mortgage advisors Activity just continue to strengthen over the next couple of years.
Speaker 2:Yeah, I think when I started, I think when I wrote my first mortgage, I think the broker share was like 13% and you know a lot, most people we spoke to didn't know what a mortgage broker was. So, yeah, things have definitely changed, but sort of year on year that has been a trend. So it's nothing new. But there was a really big jump when COVID happened. And I think you know, I think, realistically, what it is is people like to know that they've got someone that they can just jump on the phone to and get advice. And you know we give advice. Is we don't, you know, give opinion. That has to be advised, has to be something we can quantify, because we have to be able to hang a hat on that advice. So it's just having access to a trusted person that you can get that advice from, you know, as opposed to potentially sitting in a queue to try to talk to someone and trying to get a call back and maybe getting an appointment in a week or something just to ask a few questions. So I think that's, I think that's a really big piece of it. So when we needed the most advice, which was when the whole COVID thing first happened, that's when we saw the biggest jump to the broker share. But it's been tracking up years anyway and we'll probably continue to do so because at the same time, you know the banks models have changed as well. It's you know you don't have a bank on every main street and you can't just walk in and see somebody. It's you know, it's it's quite transactional there. You know you've got to make an appointment and you'll see someone and go back next time you might have to see someone else and start the conversation from scratch. And I think it's just, you know, it's just that change in those service offerings the broker service offering has has increased. As you know, with regulatory changes like we've, we have to do better as well, which it's all about getting better outcomes for the clients. And I think people just like that relationship. You know, my oldest client I've worked with, not oldest and age, but in terms of length of time I've worked with them, is 20 years. You know, legitimately, I still work with them today, 20 years later, and you know that's there's a lot of value in that relationship and I think that's one of the really big things.
Speaker 2:And you know, and that's before getting into the obvious things like if you know if you go into the bank you can talk to that bank and they can talk about their policy and how their policy would marry into your position. But is that the best policy for you? Because we've all got different, unique situations like no banks the best bank and no banks the worst bank, because they've all got different policies and every bank's policy will suit someone better. You know the best bank for me could be the worst for you, like because we're different people, and so you know when you're dealing with a broker, obviously you're dealing with all the banks in that one person and you can be on that life journey with the client as well. Like the right bank for that person today may not be the right bank for them in five or six years, because life changes and policies change and needs change, and so you know you get to maintain that relationship through your banking life as well, regardless of what the bank is and I just think there's a lot of, you know, market awareness to that sort of thing as well and you know it's obviously something that is of value to the end user being the client, which is why this year continues to track up as well, and it's not like we're not competing with banks like this.
Speaker 2:You know banks don't necessarily want you to not use a broker and just to come to the bank. Like it's actually a good model for the bank as well, because you know we bring them the client, the right client, that meets their policy the best, and you know we make that introduction and you know, and that works really well for the banks. It means they know their overheads are significantly reduced as well because they're not having to pay people necessarily, like they'd only pay a broker once we've delivered something to them. They don't pay us for doing nothing. So you know there's I think it's you know it's a win-win. Like we work well with the banks, banks work well with us.
Speaker 2:Back when I first started, like we're almost in competition, we're trying to. So the banks are trying to take our clients, we're trying to take theirs. I think the industry has matured a hell of a lot and people are quite aware of that value proposition now as well with the broker, and they'll just continue to grow. I believe you know the shares even higher in Australia it has been the whole time I've been a broker. But you know theirs has continued to track up, ours has tracked up as well and we kind of look at the share in Aussie and think, oh, that's probably where we'll be in the next five, six years, sort of thing. And we've continued to, you know, track along nicely with them. So it's yeah, will it last? Yeah, I think not only will it last, I think we'll just see it continue to increase.
Speaker 1:Actually, yeah, no, I mean, that's just so interesting and there's so many, I think, interesting little tidbits that you mentioned there right that you are genuinely giving advice, and that's what people actually want and need and that's why they go to a broker. It's that knowledge of you know which banks went so to who, when and why, and I think that's such a crucial thing and it does feel like it's truly independent advice. And that's then it's about how you establish that trust so that people can can truly believe that too, that they know that even though, yes, of course, there's something in it for the broker that they do a lot of work upfront and the banks must benefit from, like, say you, having to take them on that knowledge journey right to educate them to understand all the processes and things they have to do and serviceability and expenses and all those different things which, like you said, you take that off the bank's hands. So definitely makes sense that this is a complementary relationship and it makes sense as to why it's got to where it is. So, yeah, brilliant to hear your experience on that one, because I think that's really really interesting insight. So we'll get close to wrapping up, mate, but I just wondered, you know.
Speaker 1:Based on that, then, how do you, maybe how do you establish that trust? What sort of your tip if you were taking on a new broker in your firm or something like that? What are some of the things you talk to them about to help them establish that trust and to help them become a successful broker? And how are they negotiating? Maybe the biggest challenges that you face as a, as a, as an industry, as well as a broker, is to you know what, how you're dealing with those challenges that exist within that, that finance space as well, dealing with regulations and banks and in all those things like what's your kind of summation of how to be a successful guy? Cross-persons, that You're a question.
Speaker 2:Yeah, I think you've got to be quite relatable. I think it's really important. You know it's not for everyone. Just, I mean no roles for everyone, right, and if it was easy, everyone do it, I guess. But if you're not very relatable, then that's going to be difficult.
Speaker 2:So, you know, when you speak to someone for the first time, I guess they've got to enjoy talking to you Like you've got to be able to start adding value really quickly to them. And it doesn't have to be massive sums of value right up front, but it's just, you've just got to sound like you know you're talking their language, you understand what their needs are and you're happy to go on that journey with them. And it doesn't take long during a really quick conversation to see if, hey, this one might actually be quite straightforward or this one's actually going to be a bit clunky for these different reasons, and just being able to just have really honest conversations with people and say, hey, look, we've got a few things here. These may become issues. We might be able to deal with them quite quickly and easily. We might not. I just want to flag you straight away that this could be an issue. So this is something I'm going to look a little bit closer at for you. I think people really appreciate that and so, rather than just thinking, you need to say what they want to hear, because you know if something's going to be an issue, it's going to be an issue. So if you can just be really open about that and let them know they have potential issue, I think we can manage it. I just want to let you know, just so there's no surprises.
Speaker 2:You know those sorts of things and being relatable because if you're not relatable, then nothing you say is going to help that relationship anyway. And I have seen a lot of people who are very, very technically good lenders just not be able to operate in that broker space. You've got to be able to have some really difficult conversations at times too. You know it's not that nice when you've got a burst of someone's bubble. So, because it's great giving good news, it's always a bit harder giving bad news, but you know that is what it is, but you've got to have a lot of confidence around that. So I think I think that's what it really really comes down to.
Speaker 2:If you're relatable, then that's a really, really big advantage. You could probably be, to be honest, you could be less skilled technically, right, yeah, you'll do better. Yeah, if you're highly, highly skilled but not relatable, I mean it's just not going to work for you. Because the truth is most of our businesses happy, happy customers referring friends, family, work colleagues, et cetera. So most of our businesses are going to come from some form of referral. And so I guess if, if you're good, just by default you just get more business. If you, if you struggle, if you know, if you're socially awkward, it doesn't really matter how clever you are getting those referrals. There's always going to be a challenge.
Speaker 1:Yeah it's a, it's a, it's a service industry, right, and so it is about those relationships and, like you said, someone that's relatable and that they can talk to people and as in the community, right, I think that's why you see mortgage broker firms, some real estate agents, right, they're really involved in the community, to create connections, to know people, to be relatable, to be front and center, and that's where you start conversations and then, like you said, the good work does, the does the hard work from there on. So it all. It also lines up, I guess. But so you know, I like the way you've termed that. Relatability certainly seems to be the word for you. All, right, mate? Well, we probably should. Should wrap up and get on with the rest of our days. Is there anything else on your mind that we might not have spoken about today? Any final words, any other massive predictions? You want to chuck a crystal ball out and tell us what you expect to happen over the next one, two, 10, 20 years? Anything else you haven't touched on, mate?
Speaker 2:Hmm, I, before COVID came along, I often used to say to people because you know, they had a lot of concerns and things I'd say, hey, don't worry about it, I've seen it all, it's going to be all right. And then this whole COVID thing came along and I was like, oh, I thought I'd seen it all Turned out I hadn't. So I don't say that anymore. So whenever I'm talking about what I think is going to happen, I've got this big caveat. Now it's like, you know, unless you know, because something good happened tomorrow that derails all of this. But you know, the property market is, it is reasonably cyclical, it is. You know, there's a lot of little things that go on, but there's, you know, there are main drivers, not that I'm teaching you, because you already know it right. So, but there are main drivers. You know, if people feel safe in their employment, that's positive. If there's more people arriving than there are leaving, that's positive. You know, if access to money is reasonable, well, that's positive. So you know, you start to see these things build and then the pressures are building. So if everything's looking really positive, which is going to start to build up pressure within the market, but we're not building as many houses as we were. Then you fast forward, you start to see, start seeing a bit of an issue. You know that's going to drive up values again, so it's an interesting one. And we were getting so many consents through for new builds and that's all you know. A lot of that's fallen away. A lot of the stuff that's consented is not going to get built anyway because the projects that maybe were feasible are no longer feasible or they might become feasible again in five or six years. You know it says if you just look at the consent numbers that's not accurate anyway. But because we know a lot of it won't get built, but for the on the development side, the access to funding for those guys is significantly reduced, like significantly. So we know that we will then get.
Speaker 2:We go into this period of not building enough houses again. And then at the same time we know we've got good immigration, we know we've got good employment, you know, and as long as the economy can be in a reasonable position and whatever government we've got at the day is, you know is is giving the wider community confidence and the countries heading in the right direction. All these, those pressures just build into the obvious. So, yeah, where do I think we're going from here today? Well, I guess you know, barring something really unusual in the Reserve Bank having to do a 180 or not everything they're doing, you know. You know, if everything remaining equal, I think we'll start. We'll just see a slowly, as inflation comes under control and interest rates are coming down a little bit. That's actually going to ease up some of the tensions around borrowing and as the psychology we've already seen it changing and that continues to change and there's going to be more and more people actually wanting to get into the market, particularly as lending policy and access to money eases, we start to just see the obvious happening. If investors start to get a little bit more into the market, that's obviously going to help speed that up. I think they would be good if they did, because we probably that would probably ease the pressure on rents. There's no way they're going to drop just because National said they're going to reverse the tax deduction of interest costs. But that, you know, having more investors coming into the market will definitely ease the pressure on increasing rent. So you know that would.
Speaker 2:I thought I'd argue that's a good thing. So, yeah, I think from here, I guess you know. To sum it up, I think it's more positive than negative. If I was a first time buyer thinking, should I buy now? Hey, I think if you can get a mortgage now, you should, because I think in a couple of years you'd look back and go, damn, that was a good idea and my interest rate's gone down. So you know, I think that's, I think that'd be pretty smart. So I think there's there's a lot of positives, but the wheels turn slowly. You know we always want things to happen straight away, but the wheels turn really slowly. But I think things will slowly improve after coming off the back of things slowly getting worse, you know, yeah.
Speaker 1:No, well said, mate. I think you might be coming from my job, not my. I don't really have anything to add to that one. So you know, if you've done with mortgage-broken, maybe there's a role in the CoreLogic Research Team for you, because you've summed it up nicely there. One more prediction I need from you, then, and that is the Rugby World Cup kicks off in just over a week. Will we all next win the World Cup?
Speaker 2:Oh Jesus, well, if you'd asked me that a week ago, see you, hey, I hope so.
Speaker 1:Yeah.
Speaker 2:You know, when the country feels good, that's always helpful. So, god, I don't know. I know there's a bit concerning right. That last game was not that easy to watch. So you know, before that I was feeling really, really positive. After that I was feeling less sure. But we'll put a positive spin on it and say, well, it's really good that that happened before the World Cup. It's now been going oh, and those wrinkles out and things will just get better from here, just like the property in mortgage markets.
Speaker 1:I like it, mate. Yeah, I think it certainly feels like one of the more open World Cups which you know. I don't know if it's a good thing or bad thing for the All Blacks, but there's certainly some tough teams on their side of the draw. So, as you say, we'll wait and see and I'm sure we'll be able to get that first game against France too, so we'll see.
Speaker 2:Oh, there'll be some nervous watching, no doubt.
Speaker 1:Okay, mate. Well, let's close this out properly. Just wanted to see if there's any way that people can get in touch. Did you want to drop any social media or anything else you wanted to promote for our listeners?
Speaker 2:Yeah, look, I'm definitely not hard to get hold of and we can put some links into your show nights. That's easy as socials or just, you know, directly through my website and things. And look, I'd encourage anyone who's curious or interested to at least get in touch in some way, shape or form, even if it's just to get your hands on some e-books. That could be of help. Just get on the monthly newsletter that's full of always good current content. But even just to have a look at, hey, what could my options be right now? Because often I meet so many people who would say, hey, look, I don't think I'm ready to buy right now, but it'd be good to see where we're at. And then we discover, actually you can buy right now.
Speaker 2:But you know, often it is the case where, say, hey, you guys are quite close, we just got to tidy this area up and then we'll get you sorted. But so it's good to just start. You know we can work with a client for six weeks, six months, you know, two years, whatever it takes to get them across the line. So that's fine. So you shouldn't ever hesitate to reach out and do that, and we, most of what we do now can be done digitally as well, so it's really easy. You don't have to have a broker sitting in your lounge at 9 o'clock at night these days, so I would encourage anyone to reach out. So you have a look in the show notes and, yeah, get in touch. That's superb. Just start the conversation.
Speaker 1:I like it.
Speaker 2:Yeah, outstanding.
Speaker 1:Outstanding. I think that's a better, better say goodbye. So thank you very much for your time. I really appreciate you taking it to have a good chat to us about what's going on and some plenty of good thoughts on there too, so really do appreciate that. I just need to say thanks very much for listening. Please do get in touch with any questions or thoughts for future podcasts or even future guests as well. Let us know if there's someone you think we should include on the podcast. My details are all in the show. The notes of your podcast plan will certainly include some of Steve's as well, so please let me say thanks again. My name is Nick. He's Steve from Low Market Auckland. You've been listening to the New Zealand Property Market Podcast. I'm Nick.
